CLOSE
How Hurricanes Affect the Markets
Posted on January 27, 2018 by Danielle Bilbruck

“No two horrendous storms are alike. They’re all terrible, and while it continues, the only thing that matters is that people are dying. Anything else is just much, much less important.” 

Mad Money host Jim Cramer was one of the more compassionate experts giving breakdowns of the market post-Harvey. For many, it was business as usual: advise on the markets, which are rising, which are slowing, and it can be difficult in that space to remember that these natural disasters don’t just affect numbers, they affect lives. However, even as Cramer said immediately after that statement, the market waxes and wanes based not just on disasters, but on human activity in the middle of or immediately after disasters like this one. Now, in the wake of Harvey, Irma, and Maria, among others, the market has had a bit of time to experience both immediate blows and delayed resurgence.

Of course all industries have the capacity to both experience hits or boosts when disaster strikes. When hurricanes and tropical storms materialize, these industries are often the ones affected most, whether by boom or bust or both:

  • Oil
    • Bust: Cramer surmised that 30% of crude oil product was lost due to Hurricane Harvey alone. Refineries went out of commission because of the storm, which meant that production was halted for a number of days, to say nothing of employees unable to get to and from work sites.
    • Boom: With the lag in production and the product lost, the oil & gas industry was able to make a case for rising gasoline prices to recoup the damages. Also, with the recent influx in car sales (see below), purchases of gasoline may not have missed a terribly long beat. Additionally, evacuees fleeing the scene by car are going to need fuel, and airlines ramping up trips to accommodate new travelers need the same.
  • Insurance
    • Bust: Payouts, payouts, payouts. Whether it was flood insurance, car insurance, homeowner’s insurance, health insurance, or the like, natural disasters and “acts of God” are the bane of the insurance industry’s existence. When the policy holders come home to roost, the insurance companies will spend exorbitant amounts of money in assessments and investigations to hold on to whatever remaining payouts they can, to say nothing of the fat checks rightfully owed to those whose property is damaged.
    • Boom: Payouts often precede rising premiums. When the insurance companies take a hit, you can be certain that it’s not something that just gets absorbed as the natural course of things. Policies can be discontinued in favor of new, more expensive policies, and premiums can rise at renewal time, meaning more money for the insurance providers.
  • Automotive
    • Bust: Car dealerships have the misfortune of needing to keep everything in their retail space, outside, on the lot, where any natural disaster can take over. With hurricanes sweeping through these cities, thousands of cars were completely destroyed. While the dealerships themselves may have insurance policies on which they can cash in, that money takes time to get to them (see above), and the manufacturers are still hit in a big way.
    • Boom: Thousands of cars were destroyed. Thousands and thousands. But not just on dealership lots: in homes, in garages, in parking lots, on streets. And so, consumers need to replace their vehicles with new ones, leading to a sudden influx of car sales in the aftermath of the hurricanes, and they could be burdened with higher price tags because of lower supply.
  • Travel
    • Bust: All cruise lines coming out of the Gulf and Florida had to cancel trips in preparation for the hurricanes, leading to a large loss of profit with uncertainty about 1) when the trips could be rescheduled, and 2) if those changes in schedule would align with their customers’ travel needs. Additionally, flights canceled out of hurricane-afflicted areas, as well as the damage potentially done to airports and aircrafts, puts the travel business out of commission during the worst of the storms.
    • Boom: For the flights able to take off, or for surrounding airports not hit the hardest, evacuees who can make it up there pay the difference in ticket prices. During Irma, flight prices reportedly were hiked up to 400% over normal fares.
  • Construction/development
    • Bust: This seems like an industry that would only experience boom, except that there has been an almost nationwide shortage on construction labor for the last few months, causing development and construction firms to turn down incoming projects due to lack of bodies willing and able to complete the work. Tie this in with rising material costs, and the construction industry isn’t as set up for this as one would expect.
    • Boom: This boom is entirely dependent at this point on labor availability. The demand for this industry is absolutely present, but without the number of people needed to fulfill projects, scopes get larger, timelines get longer, and sometimes, it’s just not doable. While the other industries mentioned here can build in price hikes to make up for revenue lost, the construction industry may be at the whim of the employee market.
  • Hospitality/restaurants/food
    • Bust: For hotels, restaurants, and grocery stores in the affected areas, needing to shut down is already a huge blow to business for the month. When your facility can finally be reopened, is there damage to be repaired before you’re up to code? Are your employees able to get to and from work, or are they stuck without transportation, or worse, hurt physically? All of these things can be a major boon on an industry when 1) so many people are employed at one given location, and 2) your revenue model operates on a day-to-day consumer basis. For these industries, shut-downs can be harder to bounce back from.
    • Boom: On the other hand, prior to these buildings being affected, or for these industries in neighboring towns, the sudden influx of evacuees or consumers can mean revenue spikes in the days before the hurricane: people leaving the city need a place to stay. People leaving or staying need supplies and resources to get through the storm, and food and water can quickly become commoditized. While price-gouging remains illegal, there are unfortunately loopholes around it, and while it’s unethical to hike prices on necessities like water, as many people are scrambling to get the things they need to survive, many businesses will use “supply and demand” as an excuse to profit.

Ultimately, September jobs growth and economic revenue in affected areas took a major downturn because of these “busts,” but it didn’t last as long as originally expected. By October, many of these industries were seeing numbers return to normal, though it may be a bit longer before they bring in the kind of money that assuages losses like these.

Written by Danielle Bilbruck

 
Leave a Reply

Your email address will not be published. Required fields are marked *

*

Current day month ye@r *

MOST RECENT SFTW
INVESTOR RECOMMENDATIONS
FAST
Fastenal
SAFETY SCORE
90
BLL
Ball
SAFETY SCORE
80
SAFETY SCORE
SAFETY SCORE